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Philadelphia-based Dilworth Paxson has resorted to litigation to finally settle the fate of nearly $150,000 in escrowed attorney fees in a case that dates back to the mid-1990s.

The firm filed a complaint Wednesday in New Jersey federal court asking to be relieved from its duties as the escrow agent for the fees, which were requested by but never officially awarded to Saul Ewing following an 18-year-old qui tam settlement.

“Plaintiff has no claim to the money in the escrow account and is unable to determine, without hazard to itself, who is entitled to the funds,” Dilworth Paxson’s complaint said.

Cherry Hill Convalescent Center filed a qui tam action in 1994 against Healthcare Rehab Systems. Initially, CHCC had hired Burton Eichler of Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone to represent it in the suit.

Edward Borden of Saul Ewing (now Saul Ewing Arnstein & Lehr) entered his appearance in the case in 1996, after Eichler withdrew.

Then, in 1997, Borden withdrew from the case. Healthcare Rehab had filed a motion to disqualify him, which was later denied, according to court documents. But the judge allowed Borden to withdraw because of a fee dispute that had affected his relationship with CHCC.

After Borden’s exit, Michael Varbalow of Dilworth Paxson began representing CHCC in the qui tam suit in 1997.

In 1999, after the U.S. Department of Justice intervened in the case, all of the parties reached a settlement agreement.

Saul Ewing filed a petition for attorney fees a few weeks before the settlement was signed. A lawyer for CHCC opposed the application, and said CHCC was planning to sue Saul Ewing and Borden for legal malpractice.

Meanwhile, the parties were negotiating an agreement in which Dilworth Paxson would be the agent for $250,000 in attorney fees placed in escrow, including an amount set aside for Saul Ewing, pending the resolution of the firm’s fee dispute with CHCC.

As the dispute simmered, U.S. Magistrate Judge Robert Kugler of the District of New Jersey recommended that the court grant Saul Ewing’s request for more than $134,000 in fees. But, Kugler wrote in his opinion, CHCC and the other parties had not given express consent to his deciding the fee dispute, so he would have to submit the recommendation to U.S. District Judge Jerome Simandle for disposition.

Kugler’s decision was appealed, Dilworth’s complaint said, and Simandle never adopted the recommendation. So when Simandle signed an order dismissing the qui tam suit in May 2000, there was still no final order or judgment on the Saul Ewing fee dispute, Dilworth Paxson’s complaint said.

In August, more than 17 years later, Dilworth Paxson, as escrow agent, sent a letter to Saul Ewing and Borden, who was no longer at the firm, asking how the escrow funds should be disbursed.

Saul Ewing responded with a settlement offer, the complaint said. Borden, in his own response, said he was making no claim to the funds. And CHCC, the former client, said it was advised that it had no claim to the fee in escrow.

According to the complaint, “in the event the escrow agent shall be uncertain as to its duties or obligations, the escrow agent is entitled to refrain from taking any action until directed by a joint writing signed by the principals or by a final order or final judgment of a court of competent jurisdiction.”

But since the principals have not reached an agreement, the complaint said, Dilworth Paxson is permitted to hand over the funds to the court.

In a statement provided Thursday, Saul Ewing said, “We intend to respond to the complaint in due course and believe we are entitled to some or all of the funds at issue.”

Called for comment Thursday, Jennifer Cordes of Dilworth Paxson, who is representing her firm, said the complaint speaks for itself.

Lizzy McLellan

Lizzy McLellan writes about the Pennsylvania legal community and the business of law at firms of all sizes. Contact her at lmclellan@alm.com. On Twitter: @LizzyMcLellTLI

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